Applications of distributed ledger technology, artificial intelligence/machine learning, big data analytics or cloud computing have significant potential to alter the lifecycle of bonds, from issuance, trading to settlement, and impact the functioning of financial markets.

The following compendium is designed to provide a non-exhaustive overview of selected practical examples in fixed income primary, secondary, repo and collateral markets. It is based on publicly available information, notably press releases of executed proofs of concept or planned developments. This compendium is provided by ICMA for information purposes only and ICMA does not endorse any of those firms and solutions listed below.

Relevant firms that have made similar public announcements and wish to be included in this compendium are very welcome to get in touch. Please contact Gabriel Callsen (see below).

Important notice: The information and content provided herein have been obtained from public sources. This information is provided by ICMA for information purposes only and should not be relied upon as legal, financial or other professional advice. While the information contained herein is taken from sources believed to be reliable, ICMA does not represent or warrant that it is accurate or complete and neither ICMA nor its employees shall have any liability arising from or relating to the use of this publication or its contents.

2 October 2018 – Start of blockchain application for Austrian government bond auctions

For the first time ever Oesterreichische Kontrollbank AG (OeKB) is going live with a blockchain technology based application. The new technology is used for data notarization for reports from the 2 October government bond auction onwards. This notarization service provides a trail to verify the authenticity of data, thereby ensuring the greatest possible degree of data security. Notarization is a new additional support element for the auction process. Blockchain technology is used in this particular case as an additional layer of security.

Blockchain-based data notarization involves using an encryption method for documents to derive a unique electronic fingerprint, known as the hash. This hash is unambiguously assignable to the original document, but conversely does not allow conclusions to specific data content. "This means the original document can be stored securely in OeKB’s computing centres, and the authenticity of the document can be guaranteed. The blockchain implementation enables OeKB to integrate a further level of security based on blockchain in addition to the already existing high standards of security," explains Angelika Sommer-Hemetsberger.

The World Bank launched bond-i (blockchain operated new debt instrument), the world’s first bond to be created, allocated, transferred and managed through its life cycle using distributed ledger technology. The two-year bond [with a 2.20% coupon] raised A$110 million, marking the first time that investors have supported the World Bank’s development activities in a transaction that is fully managed using the blockchain technology.

The World Bank mandated Commonwealth Bank of Australia (CBA) as arranger for the bond on August 10. The announcement was followed by a two-week consultation period with the market, with key investors indicating strong support for the issuance. […] Investors in the bond include CBA, First State Super, NSW Treasury Corporation, Northern Trust, QBE, SAFA, and Treasury Corporation of Victoria.

The transaction included Bank of Montreal as the issuer and Ontario Teachers' as the buyer of a CDN$250MM 1-year floating rate Deposit Note, making it the first Canadian dollar fixed income issuance demonstrating the viability of blockchain platforms.

The pilot transaction – booked as a traditional Canadian Depository for Securities (CDS) issuance and successfully paralleled through the blockchain – was conducted to demonstrate how smart contracts and blockchain could be used for fixed income markets.

9/10 August 2018 – World Bank Mandates Commonwealth Bank of Australia for World’s First Blockchain Bond

The $AUD Kangaroo bond, termed ‘bond-i’ - Blockchain Offered New Debt Instrument – has been developed with the support and input of the investor community including Northern Trust, QBE and Treasury Corporation of Victoria. Once launched the bond will be issued and distributed on a blockchain platform operated by the World Bank and CBA in Washington and Sydney, respectively.

Indicative investor interest in bond-i (blockchain operated new debt instrument) has been strong. The World Bank and CBA expect to launch the transaction following a period of consultation with a broader set of investors.

20 April 2018 - National Bank of Canada (NBC) and J.P. Morgan test blockchain technology with NBC debt issuance in the US Financial Markets

J.P. Morgan has tested a new blockchain platform for issuing financial instruments with the National Bank of Canada and other large firms. The firm is seeking to streamline origination, settlement, interest rate payments and other processes.

The Canadian bank issued a $150m one-year floating-rate Yankee certificate of deposit, with a parallel simulation of the issuance, using blockchain technology. The blockchain test involved the parties mirroring the execution of the actual transaction through a debt issuance application developed by J.P. Morgan that runs on Quorum®, an open-sourced variant of the Ethereum blockchain, specifically designed to meet the needs of financial markets participants.

Telefónica Deutschland Holding AG has raised EUR 250 million through a Schuldschein issuance marketed by Landesbank Baden-Württemberg (LBBW) and DZ BANK AG. The initial target volume was exceeded by EUR 50 million. A tranche exclusively offered through LBBW, based entirely on blockchain technology, was three times oversubscribed. It was the first time that a two-digit number of investors linked up to the blockchain.

The world’s first fully automated cryptocurrency-denominated bond issuance that is also cleared, settled and registered on a public blockchain infrastructure was successfully completed today by Nivaura, a fintech company that has developed a cloud-based service for the issuance and administration of financial instruments by small and medium-sized issuers.

The Nivaura platform enables the issuance and administration of legally enforceable financial instruments at significantly lower cost than current channels. LuxDeco, an online retailer of luxury furniture and home decor accessories, issued ether-denominated bonds which were structured, executed and will be administered through the Nivaura platform. The transaction took place in Fuse – a tech innovation space based in Allen & Overy’s London offices – and was part of the Financial Conduct Authority’s regulatory sandbox, which allows businesses to test innovative products, services, business models and delivery mechanisms in the real market, with real consumers.

Commerzbank, KfW Banking Group and MEAG, the asset manager of Munich Re and ERGO, have jointly traded a Euro Commercial Paper (ECP) issued by KfW, and simultaneously replicated the transaction in a Blockchain. […] The security was sold to MEAG, and settled without a paying agent or a clearing system. This pilot transaction comprised a EUR 100,000 issuance volume with a five-day term.

In parallel to issuance and settlement, key transaction elements were replicated and simulated by means of distributed ledger technology, using the R3 Corda platform. For this purpose, the standard number of required intermediaries was reduced, this allowed for an immediate posting. In parallel a real-time replication of the transaction was done using distributed ledger technology.

Daimler and LBBW successfully tested this innovative technology for capital markets in parallel with the process that is required by regulatory authorities. Through LBBW, Daimler launched a €100 million 1 year corporate Schuldschein within which savings banks (Kreissparkasse) Esslingen-Nürtingen, Ludwigsburg and Ostalb as well as LBBW acted as lenders. The entire transaction — from the origination, distribution, allocation and execution of the Schuldschein loan agreement to the confirmation of repayment and of interest payments — was digitally carried out via blockchain technology in cooperation with the IT subsidiaries TSS (Daimler) and Targens (LBBW).

25 January 2017 – Commonwealth Bank and QTC create first government bond using blockchain

The transaction marks the first trial of Commonwealth Bank’s private, permissioned blockchain platform for the end-to-end issuance of bonds.

Queensland Treasury Corporation (QTC) successfully used the blockchain to generate a bond tender, view investor bids in real time, finalise investment allocation and settle instantly with investors. QTC acted in both the issuer and investor role to test the end-to-end process for the issuance.

The QTC bond was created in digital form using smart contract technology, and has the ability to automatically pay coupons to the current holder when due. The bond is a working prototype, is not tradable and does not carry any debt obligation.

The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) have successfully developed Delivery versus Payment (DvP) capabilities for the settlement of tokenised assets across different blockchain platforms. This will help simplify post-trade processes and further shorten settlement cycles.

The DvP prototypes, developed with technology partners Anquan, Deloitte and Nasdaq, demonstrated that financial institutions and corporate investors are able to carry out the simultaneous exchange and final settlement of tokenised digital currencies and securities assets on different blockchain platforms. The ability to perform these activities simultaneously improves operational efficiency and reduces settlement risks. The collaboration also demonstrated that DvP settlement finality, interledger interoperability and investor protection can be achieved through specific solutions designed and built on blockchain technology. Following its conclusion, MAS and SGX have jointly published an industry report, which provides a comprehensive view of automating DvP settlement processes with Smart Contracts.

The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced that it has advanced to the testing phase of its ground-breaking project to re-platform its credit derivatives Trade Information Warehouse (TIW) on distributed ledger technology (DLT) and cloud.

In this phase, 15 of the world’s largest global banks are conducting end-to-end, structured user acceptance tests, leveraging simulated use cases and test data and validating the interaction between systems, firms and other key market infrastructure providers, including MarkitSERV and its new platform for credit, TradeServ. Upon successful completion, DTCC expects to move to an “open” testing phase by the end of the year, when other market participants and service providers will have the opportunity to test. Testing is anticipated to be completed by Q1 2019 with go live scheduled thereafter.

Deutsche Bundesbank and Deutsche Börse have successfully completed the performance tests of their jointly specified prototypes for securities settlement based on blockchain technology. The prototypes support the settlement of securities transactions, payments, interest payments and repayments at the maturity of a bond. It was developed on both Hyperledger Fabric (version 1.0) and the Digital Asset Platform and subjected to demanding performance tests.

The blockchain-based prototypes are a result of a collaborative research project between Deutsche Börse and the Deutsche Bundesbank to undertake blockchain based settlement technology research (in short: BLOCKBASTER). You can find the essential results of the project in the joint publication "BLOCKBASTER, Final Report“.

The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) today announced a collaboration to develop Delivery versus Payment (DvP) capabilities for settlement of tokenised assets across different blockchain platforms. This will allow financial institutions and corporate investors to carry out simultaneous exchange and final settlement of tokenised digital currencies and securities assets, improving operational efficiency and reducing settlement risks.

Three companies, Anquan, Deloitte and Nasdaq have been appointed as technology partners for this project. They will leverage on the open-source software developed and made publicly available in Project Ubin Phase 2. The project will produce a report that examines the potential of automating DvP settlement processes with Smart Contracts and identify key design considerations to ensure resilient operations and enhanced protection for investors. The report will be released by November 2018.

Boerse Stuttgart Group is creating an end-to-end infrastructure for digital assets. After the start of cryptocurrency trading via BISON, there will soon be a platform for initial coin offerings (ICOs), a multilateral trading venue for cryptocurrencies as well as solutions for safe custody. Boerse Stuttgart Group thus continues to pursue its digitisation strategy and is becoming a pioneer for the digital transformation of financial markets and financial products.[…]

After the launch of BISON in the autumn, Boerse Stuttgart Group will be extending its activities to the primary and secondary markets. An ICO platform will allow the issuance of digital tokens, for corporate financing or to represent rights and assets, for instance. The platform will also make it possible to carry out ICOs with standardised and transparent processes.

6 July 2018 – SIX to launch full end-to-end and fully integrated digital asset trading, settlement and custody service

Switzerland's stock exchange - owned and managed by SIX - announced that it is building a fully integrated trading, settlement and custody infrastructure for digital assets. SIX is fully regulated as an operator of Financial Market Infrastructure (FMI) by Swiss Authorities, FINMA and the Swiss National Bank, and intends that the planned 'digital asset ecosystem' - SIX Digital Exchange ("SDX") - will enjoy the same standard of oversight and regulation. […]

SIX Digital Exchange will be the first market infrastructure in the world to offer a fully integrated end to end trading, settlement and custody service for digital assets. The service will provide a safe environment for issuing and trading digital assets, and enable the tokenization of existing securities and non-bankable assets to make previously untradeable assets tradeable.

ABN AMRO Clearing, EuroCCP, Euroclear and Nasdaq have completed a joint proof of concept to make the use of securities more efficient when used to cover margin calls, including after business hours, using blockchain, or distributed ledger technology (DLT). This solution addresses significant business challenges and inefficiencies related to the current provision of collateral to Central Counterparties (CCPs) and has demonstrated that a shared, resilient network can be built between collateral givers, collateral takers and intermediaries. […] The underlying collateral transfers were processed by Euroclear’s Central Securities Depository, ensuring settlement finality and regulatory compliance.

25 May 2018 – Tel-Aviv Stock Exchange, Accenture and The Floor Announce the Development of a New Blockchain Securities Lending Platform Powered by Intel

There is currently no central securities lending platform in the Israeli market. Securities Lending is at present executed in the capital market, primarily using inter-bank mechanisms within, and if necessary outside, banking group limits. As a result, the market has not been fully exploited to satisfy the potential needs of economic agents. The purpose of this project is to create one central platform that will transform the Securities Lending market in Israel by enabling direct lending among all the major financial instruments. The platform will function as a one-stop-shop for all securities lending activities, permitting access to larger securities volumes within shorter timeframes, even operating in shorter-term positions.

Hyperledger Sawtooth is the infrastructure on which the project is based – an enterprise Blockchain platform for building Distributed Ledger (DLT) applications. Intel collaborated with Accenture and TASE and The Floor to deliver a private ledger on Hyperledger Sawtooth that utilizes Intel® Software Guard Extensions (Intel® SGX) technology to encrypt transaction data. This innovative enhancement helps keep data private among transaction participants and provides closed DLT platform members with additional confidentiality capabilities.

Deutsche Börse Group and HQLAX have signed a Letter of Intent to form a strategic partnership for the creation of an innovative securities lending solution using the R3 Corda blockchain platform. […] In a traditional settlement of a securities lending transaction, underlying securities are transferred between custody accounts. In the HQLAX operating model, legal title transfer of baskets of securities will be achieved by the transfer of ownership of HQLAX Digital Collateral Records (DCRs) while the underlying securities remain static within unique DCR-linked custody accounts. The use of DCRs to effect transfers of securities will enhance regulatory transparency, mitigate systemic risk, reduce operational risk, and help financial institutions mobilise collateral and manage capital more efficiently.

Credit Suisse and ING swapped baskets of securities of value EUR 25 million using the HQLAX Corda-based collateral lending application.

During the transaction, Credit Suisse and ING agreed to transfer legal ownership of Dutch and German government securities on the platform using HQLAX Digital Collateral Records (DCRs) while the underlying securities remained static within unique DCR-linked custody accounts held by Credit Suisse and ING at Credit Suisse (Switzerland) Ltd.

Oxygen has announced the launch of the world’s first decentralized CryptoRepo trading platform. Oxygen integrates repo, an essential building block for liquid and efficient financial markets, into the crypto economy. The platform will provide crypto asset holders opportunities to earn additional income, raise liquidity and take investment views across a wide range of cryptocurrencies, coins and tokens.

In а CryptoRepo transaction, one party borrows crypto assets from another party and commits to return these assets with interest at a future date. The Borrower provides crypto assets to the Lender as collateral, creating a secured digital transaction using an Ethereum-based Smart Contract.

Broadridge Financial Solutions, Inc. (NYSE:BR), announced today the successful completion of a pilot with Natixis and Societe Generale which leverages blockchain technology to enhance the operational efficiency and auditability of bilateral repurchase, or repo, agreements.

The pilot utilizes distributed ledger technology capabilities to reduce operational risk for market participants by providing a secure record of repo trade details, reducing the need for reconciliation and removing obstacles to straight through processing. This new blockchain-enabled solution, which automates end-to-end processes, streamlines the repo agreement and confirmation processes, offers a faster and more accurate collateral substitution process, while eliminating time consuming manual interventions, and reduces counterparty risk while increasing auditability.

Four members of the "Liquidity Alliance" (LA), an international group of central securities depositories (CSDs), are cooperating with Deutsche Börse to launch an initiative leveraging blockchain technology to ease cross-border mobilisation of security collateral. With the planned solution, The Canadian Depository for Securities Limited (CDS), Clearstream (Luxembourg), Strate (South Africa) and VPS (Norway) want to overcome existing hurdles when moving collateral across various jurisdictions, making the transfer faster and more efficient. […]

Being jointly provided by regulated market infrastructures, the Distributed Ledger Technology (DLT) based "LA Ledger" prototype will enable a centralised, faster and more efficient allocation of fragmented security positions to cover financial obligations of market participants in multiple jurisdictions. The decentralised character of DLT (blockchain) allows for direct interaction between participants giving it the potential to simplify complex processes.

The test has been conducted leveraging on BNP Paribas Securities Services’ blockchain programme, PlanetFunds*, and FundsDLT, a blockchain based decentralized platform for fund transaction processing, which has been developed through collaboration between Fundsquare (a subsidiary of the Luxembourg Stock Exchange), InTech (a subsidiary of POST Group) and KPMG Luxembourg.

The test demonstrated that PlanetFunds is able to connect with other blockchains, opening the door to a new model of interoperability and marks a key milestone for fund distribution. The transaction included each part of the fund trade process, from delivery of the order to the processing of the trade.

SEB, the Nordic financial services group, and Nasdaq, Inc. (Nasdaq:NDAQ) have announced a joint project to test a developed prototype for a mutual fund trading platform based on blockchain technology. The aim is to increase efficiency in the processing of purchases and sales of fund units and to create a unit ledger – an area which today is largely characterized by manual routines, long settlement cycles and paper driven processes. […]

The concept of the project indicates that, by subscribing to a private blockchain, the various market participants—fund companies, distributors and others—will be able to share a distributed database in which all transactions and changes are registered among all participants in real-time. The cooperation agreement entails that SEB and Nasdaq will continue to develop the technology with the end goal of creating a working prototype, which will be based on the Chain.com blockchain ledger.

15 September 2017 – SETL and four asset management firms are launching IZNES, the pan-European fund record-keeping platform based on blockchain technology

SETL and four asset management firms announced today the launch of IZNES, the pan-European fund record-keeping platform based on blockchain technology. The platform provides investors, asset management firms, distributors and wealth management advisers with easy and rapid access to fund units. The platform enables firms to enter into new relationships with investors, manage KYC processes, handle subscription / redemption instructions, and settle transactions and record positions.

Compatible with all distribution channels, IZNES reduces transaction costs, increases transparency, and optimises operational workflow. It will also enable new value-added services to be developed. IZNES relies on proprietary technology developed by SETL. To ensure the best possible service, the functional specifications were defined in line with user input and contributions. The initial version was delivered by SETL in July 2017 and validated by OFI AM, Groupama AM, La Financière de l’Échiquier, and Arkéa Investment Services.

FundsDLT is the result of collaboration between Fundsquare (a subsidiary of the Luxembourg Stock Exchange), InTech (a subsidiary of POST Group) and KPMG Luxembourg. The platform is being developed to enable asset managers to sell funds through a new distribution channel, while significantly reducing administration costs and the time to process transactions for both asset managers and other asset servicers. FundsDLT intends to streamline a range of fund administration and order-routing tasks by using blockchain to automate several processes in a secure manner. The model is applicable to a wide range of funds and does not depend on the jurisdiction.